Why Every IFA Needs This Suitability Framework
Client meetings can be stressful. Especially when discussing unregulated investment options.
One wrong move and you’re facing a complaint to the Financial Ombudsman Service. Recent FCA data shows alternative investment complaints increased 23% in 2024. The regulator’s suitability rules are crystal clear – but applying them in real client conversations? That’s where most advisers struggle.
This checklist provides a framework for your suitability assessments. Five minutes. Clear questions. Better documentation of your advice process.
Important: This guidance is for information purposes only. As an FCA-regulated adviser, you remain fully responsible for conducting your own suitability assessments and ensuring compliance with all applicable regulations.
Essential Client Assessment Questions
Financial Capacity Check
Portfolio Size Requirements
- Minimum £50,000 available beyond core pension and emergency funds
- Total investable assets should exceed £100,000 for diversified alternative allocation
- Alternative investment allocation typically 10-20% of total portfolio maximum
Ask directly: “After removing your emergency fund and core pension provision, how much could you invest without affecting your lifestyle?”
The answer tells you everything about their true capacity.
Liquidity Buffer Assessment
- Client needs 6-12 months expenses in accessible accounts
- Additional buffer for potential healthcare, family emergencies
- Must maintain liquidity separate from alternative investment capital
Document their immediate cash needs. Include potential healthcare costs, family emergencies, and lifestyle expenses for the next five years.
Never recommend illiquid investment to clients who might need early access.
Knowledge and Experience Evaluation
Previous Investment History
- Document specific alternative investment experience
- Commercial property ownership counts as relevant experience
- Previous hedge fund, private equity, or structured product exposure
- Understanding of correlation, volatility, and illiquidity concepts
The FCA expects advisers to understand their client’s investment background. Ask about their experience with different asset classes.
Have they invested in commercial property? Private equity? Hedge funds? Commodity futures?
Professional Background Relevance
- Investment managers and portfolio managers qualify automatically
- Pension trustees with 3+ years experience
- Financial services professionals (minimum 2 years relevant experience)
- Qualified accountants dealing with investment clients
Some clients have professional knowledge that supports alternative investment suitability. Investment managers, pension trustees, and financial services professionals often qualify.
Their day job matters for suitability assessments.
Risk Tolerance Deep Dive
Attitude to Risk Beyond Questionnaires
Standard risk questionnaires miss crucial alternative investment considerations. You need to dig deeper.
Ask: “How would you react if this investment lost 30% in year one?” Their immediate response reveals their true risk tolerance.
Follow up: “What if you couldn’t sell for three years during that decline?”
The combination of illiquidity and volatility separates suitable clients from unsuitable ones.
Concentration Risk Comfort
Alternative investment often means concentrated positions. Unlike diversified portfolios, clients might have significant exposure to single strategies or sectors.
Test their comfort with concentration. Use examples from their existing portfolio or business interests.
Investment Objectives Alignment
Time Horizon Reality Check
Many clients say they’re long-term investors. Few actually are.
Probe their real timeline. When do they need income? Are there major life changes coming? University fees? Retirement plans?
Alternative investment works best for genuine long-term objectives. Not clients who might change their minds.
Return Expectations Management
Clients often have unrealistic return expectations for alternative investment. They’ve heard about private equity success stories but ignore the failures.
Set clear expectations. Document their understanding of potential returns AND potential losses.
Use specific examples from similar investment strategies.
Regulatory Compliance Essentials
Documentation Requirements
Suitability Review Standards
The FCA requires clear documentation of your advice process. Your file must show why you recommended specific alternative investment products.
Record the client’s responses to key questions. Include their investment knowledge assessment, capacity evaluation, and risk tolerance analysis.
Your documentation protects both you and your client.
Ongoing Monitoring Obligations
Alternative investment requires regular suitability reviews. Performance updates, risk changes, and client circumstance changes all trigger review requirements.
Plan your monitoring schedule before making recommendations. Include it in your client agreement.
Professional Investor Classifications
High Net Worth Criteria
- £250,000+ investable assets (excluding primary residence and pension)
- Annual income £100,000+ in previous two years
- Self-certification required and must be renewed annually
- Enhanced protections under FSCS may not apply
Some clients qualify as professional investors or sophisticated investors. This changes the regulatory framework significantly.
Sophisticated Investor Assessment
- Professional experience in financial services (minimum 2 years)
- Investment managers, pension trustees, qualified financial advisers
- Must demonstrate understanding of investment risks and returns
- Requires formal certification process
Document their classification clearly. Include evidence of their wealth status and professional experience.
This classification affects product access and regulatory protections. Get it right.
Red Flags That Stop Conversations
Automatic Disqualifiers
Insufficient Knowledge Base
- Cannot explain basic equity risk concepts
- No previous experience with volatile investments
- Unfamiliar with correlation and diversification principles
- Expects guaranteed returns from any investment
Limited Financial Capacity
- Investing entire pension fund or emergency savings
- Less than £50,000 total investable assets
- Unable to afford potential total loss
- Requires income from investment immediately
Short-Term Mindset
- Needs access within 24 months
- Cannot commit to minimum holding periods
- Views investment as “get rich quick” opportunity
- Unaware of typical alternative investment time horizons (5-10 years)
Clients who cannot explain basic investment concepts should not access alternative investment. If they struggle with equity risk, private equity is inappropriate.
Warning Signs to Investigate
Overconfidence in Returns
Clients expecting guaranteed high returns misunderstand alternative investment. Address their expectations before proceeding.
Ignoring Downside Risks
Every investment carries risk. Clients who focus only on upside potential need education before investing.
Making Your Recommendation
The Final Suitability Test
Before recommending any alternative investment, complete this final check:
- Client has sufficient knowledge and experience
- Financial capacity allows for potential total loss
- Investment objectives align with product characteristics
- Risk tolerance matches expected volatility
- Time horizon suits product liquidity terms
All five must be positive. One negative answer means the client is unsuitable.
Documentation Checklist
Your client file must contain:
- Completed capacity assessment – Include specific asset figures and liquidity calculations
- Knowledge and experience evaluation – Document previous investment history with examples
- Risk tolerance analysis – Record responses to scenario-based questions
- Investment objectives discussion – Match time horizons with product characteristics
- Product-specific suitability rationale – Explain why this investment suits this client
- Ongoing monitoring schedule – Plan regular review dates and triggers
Missing documentation creates regulatory risk. Complete files protect everyone.
Access to Alternative Investment Products
This framework provides the foundation for your suitability assessments. As an FCA-regulated adviser, you remain fully responsible for all compliance and suitability determinations.
Target Wealth Group provides access to alternative investment products for qualified investors through FCA-regulated advisers.
Available Investment Solutions
Private Markets – Access to private equity, venture capital, and direct lending opportunities for suitable clients.
Gold Investments – Physical precious metals and gold-backed securities for portfolio diversification.
Green & Ethical Investments – ESG-focused alternative investment options meeting growing client demand for sustainable investing.
Loan Notes – Fixed-income alternative investment products with attractive yields for income-focused clients.
IPO Opportunities – Early-stage investment access for qualified clients seeking growth potential.
Professional Services for IFAs
Product Access – Streamlined access to institutional-quality alternative investment products.
Client Classification Support – Resources to assist with high net worth and sophisticated investor assessments.
Educational Resources – Market analysis, investment strategies, and product information.
Important Disclaimers
Regulatory Responsibility: Target Wealth Group is not FCA regulated. All suitability assessments, regulatory compliance, and investment advice remain the sole responsibility of the FCA-regulated adviser. This guidance is provided for information purposes only and does not constitute regulatory or compliance advice.
Professional Advice Required: All alternative investments must be recommended through an FCA-regulated financial adviser who will conduct their own suitability assessment and provide appropriate advice based on individual client circumstances.
Risk Warning: Alternative investments carry significant risks including potential total loss of capital, illiquidity, and limited regulatory protection. Past performance is not indicative of future results.
Get Started
Register Your Interest – Join our network of FCA-regulated advisers accessing exclusive investment opportunities.
Contact Our Team – Speak with our specialists about product availability for your suitable clients.
Educational Resources – Access market analysis and investment information to support your advice process.
Important: Target Wealth Group provides product access and support to FCA-regulated advisers only. We do not provide investment advice, regulatory guidance, or suitability assessments. All regulatory responsibilities remain with the FCA-regulated adviser.
